#16 - All About Venture Capital
Some thoughts on venture capital, the StartOP perspective.
Welcome back StartOP family! We are excited to be back for the fall and have some AMAZING content lined up for everyone. This semester we’ll be mixing in some educational content with our traditional Boston startup features. Make sure to subscribe below and let us know your thoughts on the new content!
What is VC?
There are many ways to invest your assets. You can flip a house, thus investing in real estate, trade on the public stocks markets (a type of investment known as public equity), or buy a government bond (fixed income investment). One can also put their money in a bank, gaining a steady interest rate every year, or even invest in cryptocurrency. Today, however, we will talk about a different type of investment: venture capital.
Venture capital is a type of investment given to early-stage startups hoping that those companies will soon scale and have a significant return on the investment. Note that such an investment can take different forms—from money and resources to technical expertise or simple advice. By extension, venture capital firms/funds (VCs) are companies that manage the assets of multiple backers and fund promising startups, with the gains divided between the firm and the investors.
Additionally, this short video below explains the basics of VC very well:
How is VC different from traditional Private Equity?
Many of you have also heard the term private equity—the capital invested in a company by a backer for equity (a portion of the company's ownership)—which is often confused with venture capital.
Venture capital investment is actually a type of private equity investment with a strong accent on high risks and high rewards. The key difference between the two is that private equity firms tend to focus on a single large investment in a well-developed company, whereas most VCs try to diversify their assets by investing in multiple early-stage startups for a much larger share, which comes with additional risk, but can also have a much larger return in the end. PE firms also often buy the controlling stake at a company, whereas VCs mostly invest in minority shares (less than 50%).
Both sides—investors and founders—gain from every deal. Investors profit (if invested wisely) from an eventual return on their invested assets, and founders receive much-needed financial support and mentorship early in their startup's existence.
As an example, take a look at the following $7.5B deal between JAB and Panera Bread and the famous Airbnb investment story that increased Sequoia's investment by almost 43 times in ten years. The first story is a great example of private equity investment: a large-scale private equity firm spending enormous money to buy a successful, established company. The latter was a high-risk bet of a VC firm on an early-stage startup.
How can you get involved?
Depending on whether you’re in high school, college, in graduate school or have graduated there are a wide variety of opportunities to get involved in venture capital. The most common venture capital opportunities are labeled as fellowships; where an individual works to support a venture capital firm’s team and receives mentorship from individuals at the firm. If you are still in college there are a wide variety of unique fellowship opportunities from organizations like Contrary Capital and Dorm Room Fund which give students the ability to invest in early stage startups founded in their college community. Make sure to stay on the look out as many of these organizations, including Contrary and Dorm Room Fund, are actively recruiting!
Opportunities to Watch
Contrary Venture Partner - https://contrarycap.com/join
Dorm Room Fund - https://join.dormroomfund.com/
Pear VC Fellowship - https://www.pear.vc/fellows
Ripple Ventures - https://www.rippleventures.com/ripplexfellowship
Susa Ventures - https://medium.com/susa-ventures/applications-open-for-2021-susa-venture-fellows-cohort-d8d610d603be
.406 Ventures - https://www.406ventures.com/about
8VC Fellowship - https://www.8vcfellowship.com/
Greycroft Fellowship - https://greycroftvc.medium.com/the-greycroft-fellowship-fall-2021-6e05a001dad3